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European Commission - Press release
State aid: Commission temporarily approves rescue aid for Bank of Ireland
Brussels, 11July 2011 - The European Commission has granted temporary approval, under EU state aid rules, to the recapitalisation of Bank of Ireland (BoI) by the Irish authorities of up to €5.35 billion. This follows from the calculations of the Irish central bank, in March this year, of the capital needed to deleverage and meet higher than normal loan-to-deposit ratios to be able to resist stress situations. The prudential capital assessment review carried out by the Central bank was required under the Programme for Support for Ireland agreed in November 2010 between the Irish authorities, on the one hand, and the EU, ECB and IMF, on the other hand. The Irish State will underwrite the issue of new rights by BoI for up to €4.35 billion. Another €1 billion will be provided as contingent capital.
The Commission's final approval of the new recapitalisation measures is conditional upon the submission of a new restructuring plan, which is expected by the end of July.
The Commission agrees that the measures are necessary to increase the bank's solvency ratios and maintain confidence in the Irish financial markets. Therefore, it temporarily authorised the measure as emergency aid subject to the submission of a revised restructuring plan. The final approval of the measures is conditional on the plans ensuring (i) a return to long term viability of the bank, (ii) an adequate participation in the restructuring costs by shareholders and subordinated debt holders and (iii) proper measures to limit the distortion of competition created by the state support.
On 15 July 2010, the Commission approved a first restructuring plan for BoI (see IP/10/54) after it received a €3.5 billion state recapitalisation and other state support. The November 2010 EU-IMF support programme for Ireland included a prudential capital assessment review of all banks subject to the programme. The review carried out by the Irish Central Bank identified capital needs of €5.35 billion for BoI, of which €4.35 billion should be Core Tier 1 capital and € 1.0 billion contingent capital.
Before turning to the State, BoI first undertook a liability management exercise consisting of debt for equity offers, the compulsory acquisition of certain eligible debt securities and potentially further burden-sharing with subordinated bondholders.
Irish Support Programme
The Support Programme for Ireland requires Bank of Ireland, Allied Irish Bank, EBS and Irish Life and Permanent to increase their capital to meet new regulatory requirements during the period 2011 to 2013. The base case and the stress case capital targets used by the Irish Central Bank were respectively 10.5% and 6% assuming further deleveraging of the banks in order to meet the 122% loan-to-deposit ratio by the end of 2013. The Commission will assess the capital injections and restructuring plans for the other three institutions when submitted by the Irish authorities. The €85 billion EU-IMF Support Programme comprises €35 billion to meet the recapitalisation needs of the financial sector and to act as a contingency fund. Half of this is provided by Ireland itself.
Background on Temporary State aid framework for banks
In December, the Commission prolonged into 2011, albeit in a stricter form, the crisis-related State aid rules for banks and for other companies with problems accessing finance (see IP/10/1636).
The rules outlined in a Communication on the recapitalisation of financial institutions (see IP/08/1901) enabling Member States to inject emergency support into banks in order to safeguard financial stability.
Under the Communication the Commission temporarily authorises emergency support and requests a restructuring plan that ensures the bank's viability and compensation for the distortion of competition.
The July 2009 Communication on restructuring aid to banks (see IP/09/1180) outlines the terms under which Member States can give aid to banks for periods exceeding six months on condition that:
- aided banks implement a restructuring plan that ensures that they are viable in the long term without further support from taxpayers;
- aided banks and their owners must carry a fair burden of the restructuring costs and
- measures must be taken to limit distortions of competition in the Single Market.
For an overview of the State aid decisions, temporary or otherwise, as well as investigations pending see Memo/11/122.
The non-confidential version of the present decision will be made available under case number SA.33216 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.